The past few years have highlighted the need for e-commerce businesses to proactively manage supply chain risks rather than respond after the fact. Given continuing global upheaval and uncertainty, building a resilient supply chain will remain a top priority for businesses looking for a competitive edge.
A third-party logistics (3PL) provider can simplify supply chain management for e-commerce businesses. This is because they have established networks and nodes in place and can diversify suppliers and routes.
However, to get the most value out of a 3PL provider and 3PL benefits, you’ll need to carefully manage your relationship and monitor their performance.
How Do You Manage a 3PL?
Working with 3PL fulfillment centers to provide services such as warehousing, packaging, and transportation can help your business scale quickly and efficiently. You’re free to focus on marketing to attract and retain customers and build your brand — while the 3PL services work behind the scenes.
Your 3PL solutions will be most effective if you take a proactive approach to management rather than just signing a contract and hoping for the best. This guide will explain how to effectively manage a 3PL partnership to guarantee seamless logistics and maximum value.
Why Managing Your 3PL Matters
When you partner with a 3PL service, you create an extension of your business. Under the right circumstances, this can be one of the biggest 3PL advantages. Under the wrong circumstances, it can lead to delayed shipments, increased costs, and unhappy customers. You can avoid these negative outcomes by taking a hands-on approach to managing your 3PL.
A well-managed 3PL provides many benefits, including:
- Alignment with your business goals
- Optimized logistical operations
- A mutually beneficial long-term partnership
Steps to Manage Your 3PL Effectively
Managing your 3PL doesn’t have to be overwhelming or excessively time-consuming. After you set up a clear, step-by-step approach, you can integrate the process into your regular workflow. The following steps will get you started.
1. Define Clear Goals and Expectations
The first step is to be clear about your goals and expectations. Bring in all relevant stakeholders to establish what you want to gain from your partnership. This may be lower costs, faster delivery speed, expansion into new markets, or other specific goals. Setting clear, measurable goals will help you measure your 3PL’s performance, so you’ll know if they’re meeting your expectations.
Additionally, establishing goals ahead of time will also help you choose the right 3PL and help them serve you better. You’ll have a solid foundation to begin negotiations.
2. Establish a Detailed Service Level Agreement (SLA)
A service level agreement (SLA) is the foundation of your partnership. This is where you can outline exactly what you expect. When you’re measuring performance, the SLA will provide a benchmark for determining whether the 3PL has met its requirements.
Putting in the time to hammer out a comprehensive, data-based SLA will pay off dividends for you and the 3PL. Both parties can refer back to the SLA if there are questions about performance standards.
The SLA should include the metrics that are most relevant to your e-commerce business. While these may vary from company to company, almost all 3PL SLAs should include:
- Scope of services
- Delivery timelines
- Order accuracy rates
- Inventory management requirements
- Returns processing
- Customer service support
- Cut-off times for same-day or next-day shipping
- Penalties for missed targets
3. Foster Open Communication
Although your SLA should cover most potential issues that will arise, it won’t eliminate the need for regular communication with your 3PL. Communicating frequently with your third-party logistics company will help you address any issues proactively so you can head off small problems before they become big ones.
These meetings also provide you with the opportunity to keep your 3PL informed of upcoming circumstances that may impact them. For example, if you’re running a sale and anticipate a large influx of orders on certain products, they can take measures to be prepared. Regular collaboration will set you both up for success.
Schedule recurring weekly or monthly check-ins to discuss topics such as:
- Performance review, such as on-time delivery rates and order accuracy
- Inventory management, such as current inventory levels and inventory forecasting for upcoming promotions
- Potential shipping cost optimization strategies
- Customer service complaints
- Operational updates, such as new technology implementation
- New product launches
4. Leverage Technology for Real-Time Visibility
Today’s complex and sophisticated supply chains rely on data for efficient management. Invest in logistics technology for real-time visibility into order tracking, inventory management, and customer deliveries. Transparency enables strategic decision-making and allows you to identify and resolve problems faster.
Look for a 3PL partner who offers systems such as:
- Warehouse Management Systems (WMS): This software can optimize operations including inventory management, picking, packing, shipping, and more.
- Transportation Management Systems (TMS): TMS gives real-time visibility, so you can track your orders from the time they’re placed until they’re delivered to your customers.
- Integration tools: Data is the key to objective analysis of SLA fulfillment. Integration tools allow you to sync your systems with your 3PL’s for simple data sharing.
5. Monitor Key Performance Indicators (KPIs)
KPIs give you a concrete method for determining whether a 3PL is meeting SLA targets. These high-level indicators measure progress toward achieving goals. Your KPIs should be specific and measurable and set against industry-standard benchmarks. Regularly review your KPIs to identify trends and address underperformance issues early.
Some relevant 3PL KPIs include:
- Dock-to-stock time: The time lapse between when products are received at the warehouse and when they’re placed in the right storage area.
- On-time shipping and delivery: The percentage of orders that are shipped out and delivered on time. \
- Shipping accuracy: The percentage of products delivered to the correct address.
- Cost per order: Total logistics costs divided by the number of orders fulfilled.
- Inventory turnover: How efficiently inventory is moving through the supply chain.
- Inventory accuracy: A comparison of actual stock levels to the expected stock levels in the WMS.
6. Conduct Regular Performance Reviews
In addition to regular weekly or monthly collaborations, quarterly or biannual reviews should be scheduled specifically to measure performance against the SLA. Use this review to discuss successes, challenges, and areas for improvement.
These sessions allow you to create a feedback loop so you can continuously monitor and improve your results. Take the opportunity to realign your goals and refine your processes as needed.
7. Build a Strong Relationship
You’ll get the most out of your partnership with your 3PL if you think of them as an extension of your business. Ideally, they’ll be with you for the long term and will represent your company well by meeting customer expectations and helping you achieve your business objectives.
A strong relationship will foster trust and shared commitments. Although you need to hold your 3PL provider accountable for meeting goals, approach your meetings with a spirit of collaboration rather than adversity. Your 3PL can bring experience, expertise, and a strong network to your partnership. They can also alert you to supply chain disruptions and help you avoid bottlenecks and delays.
8. Be Ready to Adapt
If the pandemic and the years since have taught us anything, it’s that the supply chain is subject to upheavals from outside forces such as geopolitical conflict, labor shortages, and climate change. Many of these events are impossible to predict or plan for, so you have to be adaptable to meet these challenges.
The right 3PL can help you mitigate risk and overcome hurdles. By working together, you can handle shifts in demand and regulatory changes such as rising tariffs. They can also help you learn to make the most of emerging technologies.
The business landscape is changing rapidly, and it’s difficult to predict what lies ahead. Maintaining a flexible attitude and strong relationships can help you build a resilient supply chain so you can thrive regardless of what the future holds.
Common Challenges in Managing a 3PL and How to Address Them
Planning for the following common challenges in managing a 3PL will help you lay the foundation for a successful partnership.
1. Communication Gaps
Communication is the cornerstone of a successful business relationship. However, simply scheduling meetings isn’t enough to guarantee effective communication. Few things are more frustrating than frequent meetings where nothing is achieved or resolved. You can avoid this by establishing a process for preparing and conducting fruitful meetings:
- Set the agenda: Start by creating a concrete agenda before the meeting. Send it to all participants before the meeting so everyone knows what to expect and can prepare accordingly.
- Include all stakeholders: Make sure the right people are at each meeting. If critical decision-makers aren’t present, you won’t get much accomplished.
- Prioritize preparation: Touch base with participants who will be expected to present information ahead of time. They should know when they’ll need to contribute and how they should plan to share it.
In addition to conducting regular meetings, you can enable transparent communication by using centralized communication tools and establishing a point of contact for both teams for issues that crop up between meetings.
2. Missed Delivery Deadlines
Missed delivery deadlines can negatively impact your business. You can lose customers, waste resources, and damage your reputation. If you’re missing delivery deadlines, you need to understand the potential impact and address the root cause.
Track and measure KPIs related to delivery in your regular meetings. Consider the financial implications, customer satisfaction, and ramifications to your reputation of delayed and missed deliveries.
Investigate the root cause of missed deadlines using data analysis. Evaluate how you manage risks and issues that can affect your delivery deadlines. Identify trends and implement corrective measures such as process optimization or allocating additional resources.
3. Rising Costs
Rising costs due to inflation, supply chain disruptions, and other factors can significantly impact your bottom line. To counter this, you’ll need to focus on factors that can optimize your shipping performance and lower costs. Regularly review your invoices for savings opportunities. Benchmark your costs to make sure you aren’t paying over market value. And use data-driven insights to negotiate more favorable terms with providers and suppliers based on performance.
Your 3PL service can help by analyzing your historical data and using it to determine the best service options based on your products, price, and performance. They can work with you to identify trends that can affect your expenses.
4. Inventory Discrepancies
Keeping track of inventory can help control costs and meet customer demands, so inventory discrepancies can be a costly issue. If you’re noticing problems in your inventory, such as unexpected stockouts or overstock, dig down into your inventory data.
Conduct regular audits and cycle counts. Cross-reference physical counts with the inventory report that your 3PL issues. You can also implement random spot checks of high-value inventory or frequently picked items. Work with your 3PL to implement regular inventory reconciliation cycles.
Warehouse management systems and inventory management software can provide real-time inventory tracking and visibility. For the most accurate results, automate data syncing between your system and your 3PL.
The Role of Collaboration in Managing a 3PL
Although you need to take a hands-on, proactive approach to managing your 3PL, you shouldn’t micromanage. An effective partnership is about collaboration. Your 3PL order fulfillment provider wants to help you succeed because your success drives theirs.
Share your business insights, data, challenges, and goals with your 3PL. They are able to serve you better if they understand what you want to achieve and what your long-term objectives are. They can provide logistical expertise and solutions that are directly tailored to your needs.
Scale Your Business Success With the Right 3PL Partner
To effectively manage your 3PL partnership, you need a combination of clear communication, advanced technology, and data-driven insights. Working with your 3PL as a strategic partner will help you optimize every stage of your supply chain so you can exceed customer expectations — and grow your business.
Modern businesses are facing a period of exceptional opportunities as well as significant challenges. By building a resilient supply chain and strong partnerships, you can seize the opportunities and overcome the challenges.
At QuickBox, we’re ready to help you scale your business growth and wow your customers. Reach out today to request a quote and get expert advice on managing your logistics more effectively.